The Deliverables Trap: Why your Agency’s Margins and Retention are both Suffering

A 40-person full-service digital agency reached out to me because they were struggling with their delivery and retention. Onboarding was slow, delivery was overwhelmed and deliverables weren’t keeping up with expectations. The team continuously missed deadlines. As you can imagine, client satisfaction had taken hits and, as a result, retention and profitability suffered.

For a company with 5 to 6-figure ARR engagements, that situation was dangerous. The prime suspect was the collaboration between Sales and Delivery Teams. Leadership assumed that there was a disconnect between what was sold to clients and what delivery thought made sense and could deliver.

Three obvious problems existed in the relationship between Sales and Delivery. Sales closed clients on very specific outputs and strategies. Contracts included prescriptive language, all the way down to stating how many blog posts per month would be produced.
What’s more, Account strategists, the experts that have the deepest knowledge on making clients successful, weren’t involved in the sales conversations. Sales basically sold what the clients wanted.

Last but not least, audits of the clients’ existing infrastructure during the sales process were in place, but didn’t detect roadblocks for delivery. Sales sold website updates, when in fact, a relaunch was necessary to execute the strategy.

Optimizing for the wrong business model

The core issue at play here is vague or even wrong understanding of the value proposition and positioning of an agency’s service.
Where the company was clearly providing white glove service to enterprise clients, it was optimizing for goals of a productized service business.

1. An efficient sales process: The team tried to have Sales close the client more or less autonomously. The goal was to sign clients quickly and protect resources and margins from Strategy and Delivery.
2. They were optimizing for month-to-month profitability, so tried to keep time spent per account low. That meant the team over the years slowly abandoned a “We do what it takes” mentality, in favor of minimizing time spent to deliver the bare minimum.
3. Sales knew that, so resorted back to selling deliverables (which were predictable and could be delivered at margin) instead of results, which carried more risk. Sales just didn’t have faith in Delivery that they could pull it off.
4. Then a vicious cycle started: As contracts became more prescriptive, Delivery more and more focused on just shipping what the contract said. The more this happened, the more Sales lost confidence in the team’s ability to deliver results.

Ultimately, agencies end up with hard-coded contracts that specify each deliverable in detail, as well as a team that’s focusing on delivering those items at highest profitability.

Combine this with the inaccurate and incomplete strategy definition done by the Sales team, and you end up with a recipe for unhappy clients.

Sales sells something that doesn’t make sense, and Delivery – despite knowing better – delivers exactly that.

Yet the complexity of an enterprise client still requires many revisions, scope changes etc, so your margins are under pressure, too.

I’ve seen this vicious cycle in service businesses across industries — not just agencies. The moment you start optimizing for the wrong model’s KPIs, the whole system starts working against itself.

Fixing the process — then fixing what was underneath

I first worked with the team to fix the obvious issues.

1. We mapped the full sales and onboarding flow, as well as the first 3 months of delivery. We developed swim lane charts, clearly showing who does what at which stage. Then, we flagged all issues, including where they came from and when they surfaced. For each identified issue, we defined a process change to address them.
2. Then, we developed a lean model of involving the senior strategy people into the sales process. This ensured that they could influence what was sold to the client.
3. We reviewed and updated all audits that happened during the sales process. Some of them were too deep, others didn’t exist. For example, we added a deeper website audit as well as a CRM audit into the sales process, so the team could detect the actual scope of interventions needed in these verticals to be able to execute the strategy that was sold.
4. We improved communication with clients before and during onboarding with pre-defined touch points. This addressed the issue of perceived radio-silence after the client had signed.

During this work, I realized that these were surface level issues, so next we went one level deeper, and addressed the cultural and incentivization issues.

1. We introduced KPI tracking on accounts, but with a strong focus on Lifetime Value (LTV) instead of short-term gross margin. This showed the team that it was okay to be overspending one month, if it meant they could keep the client happy, retain them for longer or even upsell.
2. Next, we held a company-wide workshop to surface the fear of failure that had crept into the culture. We showed people how the new goals around LTV gave them more freedom to be creative and produce results for the clients, instead of blindly pumping out deliverables.
3. I worked with sales to mirror that new found self-confidence in their sales process and contracts. Instead of selling numbers of deliverables, they changed the contract templates back to selling outcomes. They regained faith in the delivery team that they will make it work.
4. A core component of that was to change client expectations: We updated our language in the sales process. Instead of telling them during the sales process and in the contract “Here’s your strategy,”, we clearly communicated that the final strategy, including deliverables, will be defined by a team of cross-functional experts during the onboarding.
5. To accomplish this, we redesigned the onboarding process to include the team leads and account strategists. In a collaborative process, after an internal kickoff meeting held by Sales and Strategists, they now have two weeks to collaboratively come up with the strategy and tactics. Where previously, they just executed disconnected deliverables, they now were able to design the plan to accomplish the goals in an integrated manner, across all functions.
6. We created a new touch point for clients during this extended process, where they were briefed on progress. Also, we defined an external kickoff meeting with the clients, were the Strategist and functional leads presented their strategy and tactics, and the client signed off on it.

What Changed

The most remarkable change was the self-confidence that both Sales and Delivery teams gained through these changes.

Sales can confidently sell outcomes again, and Delivery now has the freedom to do what it takes to deliver on these outcomes.

Strategy now takes more ownership of the accounts, acting like an entrepreneur who’s willing to sacrifice short-term profitability for a limited period, in favor of increased Lifetime Value.

Client feedback clearly showed that they valued the thoughtful, crafted and custom strategy, and that they felt much more confidence in the team during onboarding, because they finally knew what was going on.

Delivery margins are up by 15 percentage points.

Sales cost more resources now and cycles have increased. But the nature of this agency’s business – large scale enterprise accounts with a long lifetime – justifies that tradeoff.

In hindsight, I often wish I’d found the underlying, cultural and business model issues earlier. But it’s part of the process that sometimes, you have to peel layer by layer to get to what’s really going on.

The question that matters

There’s only so much you can do with operational improvements. If you’re strategically misaligned, it’s just surface level work with surface level impact.

The core question you can ask yourself about your service business today is this: Am I a white-glove, high-touch, high-ticket service, or am I low-cost, productized and automated.

Getting crystal clear on this question will give you all the clarity to decide how you want to run your team and operations.
Setting priorities for your tech-enabled service business

Automating and standardizing a productized business makes sense. So does accepting custom and bespoke work in high-ticket, LTV-focused businesses.

But applying a productized delivery-model to a white-glove service business is almost certainly a recipe for trouble.